meu on industry sept 2013

8/13/2019 MEU on Industry Sept 2013

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INDUSTRIAL SECTORSLUGGISHNESS AND CATCHING UPBangladesh Economic Update

September 2013


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Bangladesh Economic Update, September 2013 Page | 2

Bangladesh Economic UpdateVolume 4, No. 9, September 2013

AcknowledgementBangladesh Economic Update is a monthly publication of the Economic Policy Unit of UnnayanOnneshan, a multidisciplinary research organisation based in Dhaka, Bangladesh. A team worksunder the guidance of Rashed Al Mahmud Titumir, comprising Shahida Pervin and Shahid Md.Adnan.

Copyright: Unnayan Onneshan The content of this publication may be reproduced for non-commercial purposes with proper citation (please send output to the address mentioned below).Any other form of reproduction, storage in a retrieval system or transmission by any means for

commercial purposes, requires permission from the Unnayan Onneshan.

For orders and request please contact:UNNAYAN ONNESHAN16/2, Indira Road, Farmgate Dhaka-1215, BangladeshTell: + (880-2) 8158274, 9110636Fax: + (880-2) 8159135E-mail: [email protected]: www.unnayan.org


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1. INTRODUCTIONThis issue of Bangladesh Economic Update concentrates on thecurrent situation and prospect of industrial sector. It also

reviews the state of technology catching up. The industrialsector requires immediate attention due to sluggishness andpolicy ambivalence. The indicators of industrial performancesuch as industrial index, disbursement of term loan, openingand settlements of letter of credits (LCs), investment demandsuggest sliding down.

A number of recent policy and structural problems areassociated with the sluggish performance of industry.Contractionary monetary policy, inadequate infrastructure,

incompatible fiscal policy, unfavourable exchange and interestrates, loan scenario accompanied with some structuralbottlenecks are found to have causal effect on the presentfloundering performance of the industrial sector.

Fiscal and monetary policies jointly have affected the industrialsector accompanied with appreciated domestic currency andlarger interest rate spread by making the available fund costly.These eased to achieve the track of inflation target thatreduced from 7.39 percent in August 2013 to 7.13 percent in

September 2013 with high cost of investment in industry.Increased Loan default currently raised risk for banking sectorto turn loanable fund into credit with lower rate. Regularinadequate supply of electricity, gas and other infrastructure isalso blended with policy paralysis.

Savings-investment gap, lack of states activist role, productand market diversification, under implementation of ADP andover expenditure of non development allocated budget are afew broadly visible structural bottlenecks among many others

for retarding industrial performance.

Recent political developments and international actions haveraised increasing burden on industry. After Rana Plaza crashindustry especially RMG sector has fallen in a precarioussituation for international pressure. This has been


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Growth of manufacturingindustry in FY 2012-13 was9.34 percent which waslower than those of 9.37

and 9.45 percent of FY2011-12 and FY 2010-11respectively.

compounded with the recent USTR decision to suspend GSPfacilities for Bangladeshi products.

In terms of technological catching up Bangladesh is far behindthan the other developing countries. Technological catching up

can be the best way to faster industrial growth. Butunfortunately there are no noteworthy improvements and steptowards technological catching up.

Taking these points into consideration this issue highlightssome policy supports including technological catching up in thebackdrop of current state of industry. The second section ofthe issue represents the current scene of industrialperformance. Section three attempts to find the reasons ofslowdown. The fourth section is devoted to analyse the state of

technological catching up of Bangladesh, with an effort to learnlessons from the emerging economies. The penultimate sectionprovides recommendations as regards policy support.

2. CURRENT SITUATION OF INDUSTRYThe present section focuses on a number of indicative factorsto encapsulate the current situation of industry. Thoseindicators include trends in growth of industry, share ofindustry in GDP, state of industrial index, scenario of

investment, movements in industrial term loan, status ofexport and import, condition of opening of LCs andperformance of business.

2.1 Trends of Industrial GrowthGrowth of manufacturing industry in FY 2012-13 was 9.34percent which was lower than those of 9.37 and 9.45 percentof FY 2011-12 and FY 2010-11 respectively. However, growth ofmanufacturing sector witnessed an expansion in FY 2010-11and followed deceleration in FY 2011-12 and FY 2012-13.

Historical track record suggests that growth of manufacturingsector might stand at 9.22 and 9.11 percent in FY 2013-14 andFY 2014-15 respectively.

The share of industry in GDP increased by 2.73 percent in FY2012-13 than that of the previous fiscal year and stood at 31.98percent. The share of industry in GDP in FY 2012-13 increased


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The share of industry inGDP increased by 2.73percent in FY 2012-13 thanthat of the previous fiscalyear and stood at 31.98

percent.

by 5.90 percent (on average) than the previous five fiscal years(FY 2007-08 to FY 2011-12). However, the share of industry inGDP increased by 6.63 percent (on average) from FY 2007-08to FY 2011-12 compared to the average of previous five fiscalyear (FY 2002-03 to FY 2006-07). If the current trend

continues, share of industry in GDP in 2013-14 and 2014-15might stand at 32.28 and 32.57 percent respectively.

Figure 1: Industrial Growth and Share on GDP

Source: Ministry of Finance, 2013

Table 1: Sectoral Shares of GDP of Different Countries in 2012Countries Agriculture ( ) Industry ( ) Service ( )Bangladesh 17.5 28.5 53.9India 17.4 26.1 56.5Thailand 12.3 43.6 44.2Malaysia 11.4 40.2 48.3China 10.1 45.3 44.6Brazil 5.2 26.3 68.5United Kingdom 0.7 21 78.3USA 1.1 19.2 79.7Source: World Fact Book 2012, CIA.

Share of industry in GDP in Bangladesh is much lowercompared to the emerging countries (e.g. Thailand, Malaysia,China). The share of agriculture in Bangladesh is highestcompared to the countries irrespective of emerging anddeveloped economy (Table 1). Generally, maximum share ofGDP in developed countries comes from the service sector,while the emerging countries have high share of industry andrelatively largest and lowest share of service and agriculturesectors respectively.


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The industrial productionindex increased from108.76 in FY 2006-07 to192.47 in FY 2012-13 whichmight further increase to210 and 228 in FY 2013-14and FY 2014-15respectively.

The general index of small

scale manufacturingindustry in the thirdquarter (January-March) ofFY 2012-13 declined to358.03 reducing by 2.37percent from the secondquarter (366.74).

If emphasis can be given to rapid transformation to theindustrial sector, the goal of graduating into a middle incomecountry might become more likely.

2.2. Industrial IndexIndustrial production index, an indicator of the industrialcondition within the country, increased over the period fromFY 2006-07 to FY 2012-13. The index increased from 108.76 inFY 2006-07 to 192.47 in FY 2012-13 which might furtherincrease to 210 and 228 in FY 2013-14 and FY 2014-15respectively.

The index fall by 4.9 percent in April 2013 than that of March2013 while it increased by 10.19 percent in May 2013 and 6.96percent in June. The index value reached at 220.84 in June

which was 187.35 and 197.01 in April and May of 2013respectively.

Figure 2: Quantum Index of Large and Medium ManufacturingIndustries (Base 2005-06)

Source: BBS, 2013

The general index of small scale manufacturing industry in thethird quarter (January-March) of FY 2012-13 declined to

358.03 reducing by 2.37 percent from the second quarter(366.74). In the four quarters of FY 2010-11, there was positivegrowth rate over in small scale industry index. After thenegative growth rate in the first two quarter of FY 2011-12, theindex of small scale manufacturing industries continued togrow up till second quarter of FY 2012-13, and fell again in thethird quarter.


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The growth rate ofindustrial term loan in thelast quarter of FY 2012-13was 4.49 percent whichwas the lowest since thesecond quarter of FY 2011-12.

Figure 3: Quantum Index of Small Scale Manufacturing Industries(Base 1995-96)

Source: BBS, Different Monthly Updates

2.3. Status of the Industrial LoanThe disbursement of industrial term loan as well as recoveryhave shown regular oscillation since the second quarter of FY2011-12 with positive growth in one quarter followed bynegative growth in the following one. The growth rate ofindustrial term loan in the last quarter of FY 2012-13 was 4.49percent which was the lowest since the second quarter of FY2011-12, while third quarter of FY 2011-12, and first and thirdquarter of FY 2012-13 witnessed negative growth.

Figure 4: Status of Industrial Term Loan

Source: Bangladesh Bank, September 2013.


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SME loan increased to Tk.1008.64 billion in June2013 from Tk. 955.23billion in March 2013.

Import payment in July ofFY 2013-14 was USD3056.60 million which wasUSD 2835.90 million inJuly of FY 2012-13.

SME loan increased to Tk. 1008.64 billion in June 2013 fromTk. 955.23 billion in March 2013 from 5.25 percent fall inMarch 2013. SME loan roamed around 20 to 22 percent as ashare of total loan from December 2010 to March 2013,despite SME sectors greater contribution in total industrial

GDP.

Figure 5: Status of the SME Loan

Source: Bangladesh Bank, 2012, 2013

2.4. Letter of Credit (LC) ConditionImport payment shows a downward trail in FY 2012-13

compared to FY 2011-12 in terms of opening and settlement ofLCs. However, import payment in July of FY 2013-14 was USD3056.60 million which was USD 2835.90 million in July of FY2012-13. Industrial raw materials, machineries formiscellaneous industries, petroleum and petroleum products,consumer goods, and intermediate goods fell both in terms ofopening of fresh LCs and settlements during July-June, FY2012-13 compared to July-June, FY2011-12. Only opening offresh LCs for capital machineries increased by USD 665.17million over the period.


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Between FY 2011-12 and FY2012-13, manufacturedexport earnings declined by

63 percent, while theimport payment decreasedby 46 percent.

Import of capitalmachineries reduced fromUSD 2005 million in FY2011-12 to USD 915 millionin FY 2012-13, equaling a

reduction of 54.36 percent.

Figure 6: Fresh LC Opening and Settlement for Different ImportSectors

Source: Bangladesh Bank, August 2013

2.5. Manufactured Trade Gap and Capital Machineries ImportPaymentIn FY 2012-13, manufacturing trade surplus reduced by 26.27percent. Between FY 2011-12 and FY 2012-13, manufacturedexport earnings declined by 63 percent, while the importpayment decreased by 46 percent. As a consequence,international trade surplus reduced to USD 10147 million in FY

2012-13 from USD 13758 million in FY 2011-12. Therefore, asharp decline in export earnings compared to import earningshas led to a decrease in manufacturing trade surplus.

Import of capital machineries reduced from USD 2005 millionin FY 2011-12 to USD 915 million in FY 2012-13, equaling areduction of 54.36 percent. Evidence of significant positivecorrelation of 0.45 between import payment of capitalmachineries and export earnings gap suggests that theimportance of import of capital machineries in short run and

technological catching up for the long run on growth ofindustry. Lower import of capital machineries has beenaffecting industrial production inversely as Bangladesheconomy depends on foreign capital goods.


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Figure 7: Manufactured Trade Gap and Capital Import


2.6. Business PerformanceBangladesh is opening up its economy for the world withoutextending the internal protection to infant industries.According to Doing Business, Bangladesh moved down fivesteps in 2013 from the 2012. The country achieved 129thposition in 2013, which was 124 in 2012 while neighbouringIndia maintained the previous position, and Malaysia improvedtwo steps. A close examination of the ten indicators of thisindex reveals that four indicators kept unchanged, while fiveitems became worsened. Only one indicator, which actuallymeasures trading across border has shown improvement.

Without improvement in infrastructure and domesticcompetitiveness, it is questionable that whether such openingis good for the industrial sector.

Table 2: Doing Business Position Bangladesh India MalaysiaRanking 2013 1012 2013 2012 2013 2012Rank 129 124 132 132 12 14Starting a Business 95 89 173 169 54 42Dealing with Construction Permits 83 83 182 183 96 116Getting Electricity 185 185 105 99 28 27Registering Property 175 175 94 97 33 62Getting Credit 83 80 23 23 1 1Protecting Investors 25 24 49 46 4 4Paying Taxes 97 95 152 149 15 25Trading Across Borders 119 120 127 125 11 12Enforcing Contracts 182 182 184 184 33 31Resolving Insolvency 119 116 116 109 49 48Source: Doing Business Ranking, 2013


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The share of industry inGDP increased by 2.73percent in FY 2012-13 thanthat of the previous fiscalyear.

The rate of growth inprivate sector credit stoodat 11.33 percent in Augustof FY 2013-14 that was19.92 percent during the

same month in the previousfiscal year.

The credit growth in the

overall domestic sectorslumped to 12.31 per cent inAugust 2013 than that of19.01 per cent in thecorresponding month of2012.

2.7. Summary of TrendsThe situation of industry in the recent time depicts thefollowing trends:

First, the growth rate of manufacturing industry followed a

declining trend in the last two fiscal years although the shareof industry in GDP slowly recovered the decelerated growth inprevious three fiscal years. The share of industry in GDPincreased by 2.73 percent in FY 2012-13 than that of theprevious fiscal year.

Second, after showing positive growth rate for fourconsecutive quarters, industrial index for small and cottageindustry has fallen in the third quarter of FY 2012-13.

Third, in case of disbursement of industrial term loan, thegrowth rate recovered with 4.49 percent positive change in thelast quarter of FY 2012-13 from the previous larger fall 17.76 inthird quarter of same fiscal year 2012-13.

Fourth, import in important areas, such as industrial rawmaterials, machineries for miscellaneous industries, petroleumand petroleum products, consumer goods, and intermediategoods declined in FY 2012-13 both in terms of opening of freshLC and settlement compared to FY 2011-12.

Fifth, import of capital machineries observed a reduction fromUSD 2005 million in FY 2011-12 to USD 915 million FY 2012-13,equaling a reduction of 54.36 percent. Evidence of significantpositive correlation of 0.45 between capital goods importpayment and export earnings gap points the importance ofcapital machineries import in short run and technologicalcatching up in the long run for growth of industry.

Sixth, in terms of technological catching up, Bangladesh is farbehind than the other developing countries. But unfortunately

there is no noteworthy improvement and step towardtechnological catching up.

Seventh, political and international issues have also become theconcern for industry. Couples of threat have been arisen forthe industrial sector in recent time including currencyexchange pressure, GSP, and political instability amongstothers.


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The government allocatedhigh amount of Tk. 113.5120billion, 5.1 percent of totaldevelopment and nondevelopment budgetexpenditure, for power and

energy sector in proposedbudget of FY 2013-14.

3. REASONS FOR SLOW DOWNThe major indicators of industrial performance considered inthis study present a picture of industrial performance in recenttime. Identification of the causes of deterioration and possible

source of further slowdown are, therefore, imperative forconcentrated policy inducement to retrieve from presentcondition and animate the industry.

3.1 Policy IssuesPolicy issues are the key factors for convincingly definedperformance of industry instead of incongruence. Theinconsistent monetary, infrastructural, fiscal, currency, interestrate policies are the fundamental reasons of flounderingperformance of industry.

3.1.1 Monetary PolicyThe contractionary monetary policy of central bank to curbinflation and resolve balance of payment is exerting pressureon industrial sector. Cost of loan for the private sector isincreasing due to such policy. The contractionary monetarypolicy aimed at lowering inflation rate is on the track but it haseffected a high cost for overall economy and the presentreaction of industrial sector has went beyond the objective ofmonetary policy with stagnant investment.

3.1.2 InfrastructurePower is thought to be the driving factor of industrialproduction. However, the gap between peak demand andmaximum generation is extensively high resulting fromsubstantial gap between capacity and maximum generation ofpower. The gap increased in calendar year 2013 than that ofthe previous two calendar years. Realising the importance ofpower, the government allocated high amount of Tk. 113.5120billion, 5.1 percent of total development and non development

budget expenditure, for power and energy sector in proposedbudget of FY 2013-14. This amount is 18.94 percent more thanTk. 95.44 billion in FY 2012-13. The implementation of ADP is2 percent in July-August period of FY 2013-14.


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Total allocation forministry of industry in FY2013-14 is Tk. 22.87 billion

including Tk. 21.17 billionfor development and Tk.1.70 billion for non-development purposes.

Figure 8: Peak Demand and Maximum Generation Gap

Source: Bangladesh Power Development Board, 2013

In addition, the economy has been suffering from increasedprice of electricity that has transformed into the increased costof production. Moreover, owing to large allocation ofgovernment budget in power sector, less is allocated for socio-economic infrastructure like health, education, agriculture etc.Other infrastructural facility e.g., gas, transport are alsoinsufficient for robust industrial performance.

3.1.3 Fiscal PolicyBudgetary expenditure frequently exceeds the proposedallocation in Bangladesh with non-development expenditureexceeding the allocation and the development expenditurefalling short of the allocation. This structural bottleneck ofbudget implementation affects the economy retarding thelong-term infrastructural development and capacity.

Total allocation for ministry of industry in FY 2013-14 is Tk.22.87 billion including Tk. 21.17 billion for development and Tk.1.70 billion for non-development purposes. In FY 2012-13, the

revised budget was Tk. 18.39 billion including Tk. 15.58 billionfor development and Tk. 2.81 billion for non-developmentalthough the allocation was Tk. 17.37 billion for developmentand Tk. 1.07 billion for non-development purposes in thecurrent budget.


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The currency of Bangladeshwitnessed appreciation andexchange rate stood at Tk.77.75/USD in August of FY2013-14 from Tk.

81.72/USD in August of FY2012-13.

Interest rate spread stoodat 5.13 and 5.02 percent inJune and July of calendaryear 2013 while Bangladesh

Bank avowed to keepinterest rate spread within5.0 percent in the July-December 2013 term.

3.1.4 Currency MovementRecently, the currency of Bangladesh witnessed appreciationand exchange rate stood at Tk. 77.75/USD in August of FY2013-14 from Tk. 81.72/USD in August of FY 2012-13 vis--visdepreciation of Indian Rupee. The appreciation based on

remittance inflow and shortfall of import payment may makethe currency having depressing affect on industry. Industrialsector of Bangladesh is dependent on import of capitalmachineries and intermediate industrial goods. From thisviewpoint, appreciation of taka is desirable for cheap import.But in the upside down, the economy is likely to suffer fromlessened export competitiveness and remittance earning.

Figure 9: exchange rate of taka and rupee against USD

Source: Bangladesh Bank, September, 2013

3.1.5 Interest Rate SpreadHigh interest rate spread is an underlying characteristic of thefinancial market of Bangladesh. Although interest rate spreadhas reduced somewhat over time, but is still considered to behigh. Interest rate spread stood at 5.13 and 5.02 percent inJune and July of calendar year 2013 while Bangladesh Bank

avowed to keep interest rate spread within 5.0 percent in theJuly-December 2013 term. High interest rate spread induceindividuals to save less in one hand and entrepreneurs to investless on the other. The subsequent effect of high spread is thelow savings and investment where the scenario of investmentis rather depressing currently.


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In 2012, the non-performing loan was 10.03percent of total loan whichwas 6.12 percent in 2011.

The excess liquidity was 9.8

percent up to June 2012which was 9.3 percentsame as of 2011.

The national savings andtotal investment gapextended to 2.67 percent ofGDP in FY 2012-13 from2.64 percent in theprevious fiscal year.

Figure 10: Interest Rate Spread

Source: Bangladesh Bank 2013

3.1.6 LoanLoanable fund and loan default raised the jeopardy forindustrial performance and for further deterioration.Increasing loan default threatens the financial market whilecurrent lack of investment demand supports the stockpiling ofloanable fund. In 2012, the non-performing loan was 10.03percent of total loan which was 6.12 percent in 2011. Theexcess liquidity was 9.8 percent up to June 2012 which was 9.3percent same as of 2011. Weighted average of advance interestrate on scheduled banks increased to 13.77 percent in 2012from 12.80 in 2011. Loan scenario that is depressing the

industrial performance might have helped to reduce the rate ofinflation to 8.69 percent in 2012 from 10.91 percent in 2011(yearly average).

3.2 Structural IssuesSome structural issues are also responsible for the poorperformance of the industrial sector of the country. Savings-investment condition, lesser role of the state and meagrediversification of products and destinations are majorstructural drawbacks.

3.2.1 Savings-Investment GapOne of the crucial reasons for decelerating growth inBangladesh is rising savings-investment gap. The nationalsavings and total investment gap extended to 2.67 percent ofGDP in FY 2012-13 from 2.64 percent in the previous fiscalyear. Private investment reduced by 1.05 percentage point of


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In FY 2013-14, government

allocated 0.81 percentlower development and nondevelopment allocationthan the previous fiscalyear allocation for ministryof Science and Technology.

GDP from 20.04 percent in FY 2011-12 to 18.99 percent in FY2012-13, while total investment increased by 0.30 percentagepoint of GDP due to increased role of public sector investment.Industrial sector of Bangladesh economy is private sectororiented. Performance of all major indicators reflects that the

private sector has been depressing with lower investment dueto the extended gap.

Figure 11: National Savings and Total Investment Gap


3.2.2 Role of the State in IndustrialisationPrivate sector is spurred into effective and sufficient action bythe pioneering and facilitative proactive role of state. But inBangladesh government plays the role of facilitator with someincentive but has not pro-actively played the leadership role.While private sector tradeoffs between profit and risk, thegovernment thinks about the wellbeing and capacity of thenation. The entrepreneurial risk taken by state cannot bewelcomed by profit motive private sector. The lack ofgovernments entrepreneurial role in technology, innovationand large size investment seems one of the fundamentalreasons of low capacity and investment. In FY 2013-14,

government allocated 0.81 percent lower development and nondevelopment allocation than the previous fiscal year allocationfor ministry of Science and Technology. Total allocation is Tk.3.67 billion which is 0.16 percent of total budgetary allocationwhich is not supportive for technological development.


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Only nine productscontributed 93 percent oftotal manufactured export

earning in FY 2012-12. Outof these nine products onlyreadymade garmentscontributed 90 percent inFY 2012-13.

Government allocated Tk.3.67 billion as developmentand non developmentexpenditure for ministry of

science and technologywhich is 3 percent higherand 0.84 percent lowerthan the revised andproposed budget of FY2012-13 respectively.

India allocated Rs. 62.75

billion in science andtechnology in 2013 which is5 percent and 24.75percent higher than thoseof the proposed andrevised budget of theprevious year

3.2.3 Lack of DiversificationThe industrial production as well as market is not sufficientlydiversified. In FY 2012-13, 66 percent of total export earningwas only from nine countries including USA, Canada, Japan andsix European countries while all the remaining countries of the

world contributed to remaining 34 percent of export earning inBangladesh. Similarly, only nine products contributed 93percent of total manufactured export earning. Out of thesenine products only readymade garments contributed 90percent in FY 2012-13. The lack of product and marketdiversifications acts as major stumbling bock for progress ofthe economy.

4. TECHNOLOGICAL CATCHING UP AND COMPARATIVEANALYSISBangladesh is lagging behind in technological catching up andthere is no mentionable effort to steer catching up process.

4.1. Bangladesh in Technological Catching UpShare of technology in total manufactured export, per capitaGDP and ranking in different index manifest the poor conditionof technological advance in Bangladesh and calls for morepolicy initiatives in this area. In 2007, Bangladesh exported 1.15percent high technology manufactured goods of total

manufactured export which was 6.40 percent for India, 25.96percent for Thailand, 52.28 percent for Malaysia, and 18.41percent for Japan. With this lower share of high technologyexport, government allocated Tk. 3.67 billion as developmentand non development expenditure for ministry of science andtechnology which is 3 percent higher and 0.84 percent lowerthan the revised and proposed budget of FY 2012-13respectively. India allocated Rs. 62.75 billion in science andtechnology in 2013 which is 5 percent and 24.75 percent higherthan those of the proposed and revised budget of the previous

year although India experiences good performance intechnology (The Economic Times, 2013).


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Figure 12: Share of High-end Technology Export in TotalManufactured Export

Source: World Development Indicator, 2012

In terms of innovation, Bangladesh is heading towards lowpace of technology catching up arising from negligible efforts.Losing 18 steps in global innovation rank, it reached at 130 thposition in 2013 from the previous 112th position in 2012. Incompetitive industrial performance (CIP), Bangladesh and Indiamaintained the same rank in 2009 and 2010, while the otheremerging countries Thailand, Malaysia and developed countrylike Japan improved the position. In knowledge index,Bangladesh lost 3 step of rank over twelve years, which include

education, innovation and Information and CommunicationTechnology.

Table 3: Rank of the CountriesIndex, Score Year Bangladesh India Thailand Malaysia JapanGlobal InnovativeIndex 2013 130 (24.52) 66 (36.17) 57 (37.63) 32 (46.92) 22 (52012 112 (26.1) 64 (35.7) 57(36.93) 32 (45.9) 18 (6CIP Index 2010 78 (0.0254) 43 (0.0747) 23 (0.1712) 21 (0.1834) 1 (0.5

2009 78 43 26 22 2KI 2012 137 (1.48) 110 (2.89) 66 (5.25) 48 (6.25) 22 (82000 134 (1.83) 104 (3.0) 60 (5.07) 45 (6.45) 17 (8

Score is in parenthesisSource: JOHNSON, INSEAD, WIPO, 2012, 2013; UNIDO 2013; World Bank2012

Finally, low per capita purchasing power is one of theindicative factors of her slow rate of technological catching up.Percentage change between 2000 and 2011 in per capitapurchasing power GDP in countries with higher income like


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Percentage change between2000 and 2011 in percapita purchasing powerGDP in countries withhigher income like USA and

Japan were 0.07 and 6.13respectively whereas thispercentage change washigher in countries withcomparatively lowerincome like Bangladesh(61.65), India (86.00) andThailand (38.86).

USA and Japan were 0.07 and 6.13 respectively whereas thispercentage change was higher in countries with comparativelylower income like Bangladesh (61.65), India (86.00) andThailand (38.86). Higher figure of percentage change in thedeveloping and emerging economies depicts the scope of

catching up. However, percentage change in income inBangladesh is comparatively high but it is lower than India.Although India has higher income than Bangladesh, the country(India) is continuing the pace of increasing income that depictsthe focus of India in technological catching up which lacksBangladesh.

Table 4: Per Capita Purchasing Power GDP (USD2005)2000 2005 2010 2011 Change2000-

2011( )USA 39545 42516 42079 424860.074371

Bangladesh 970 1165 1488 1568 61.64948of USA 2.45 2.74 3.54 3.69 50.61224

Thailand 5497 6675 7673 7633 38.85756of USA 13.90 15.70 18.23 17.97 29.28058

India 1722 2209 3039 3203 86.00465of USA 4.35 5.20 7.22 7.54 73.33333

Japan 28889 30441 30965 30660 6.130361of USA 73.05 71.6 73.59 72.17 -1.20465

Source: World Development Indicator, 2012

4.2. Comparative Technological Catching Up and Lessons forBangladesh:Malaysia, Thailand, Singapore, and Japan can be consideredrole model for Bangladesh in the catching up process. Initiallya primary product dependent Malaysia turned intomanufacturing and service oriented economy. Technologicalcatching up took place through spillover effect of foreign firmsoperation and massive skill development efforts undertaken bythe government. Research and development expenditure as

percent of GDP reached to 1.07 in 2011 from 0.5 in 2000 inMalaysia, resulting from increasing importance of R&D at thepolicy level (MASTIC, 2013).

Thailand transformed from agricultural based economy of1960s to an industrialized one in 1990s. Thailand importedsophisticated technology, assembled them within the country


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and exported high technology oriented product, reflected in thehigh technology share of export with comparatively lowexpenditure on R&D. Research and development expenditure. Italso cared for infrastructure development, environment andhuman resource. Recently, information and communication,

biotechnology, nanotechnology, and material technology are onpriority in Thailand. The present Thaksinomics runs under twoperspectives (a) competing globally and inclusive ruraleconomy.

Singapore has emphasized much on technologicaldevelopment, and R&D expenditure represented 2.28 percentof GDP in 2011 which was 2.09 percent in 2010 (Agency forScience, Technology and Research, 2012). Singapore has alsobeen emphasizing on most up to date technological

development while trying to develop efficient human resourcefor the production of high-technology products.

Japan acquired matured technology from the developedcountries at the initial stage of catching up. In Japan,engineering and in house R&D are highly prioritized. Thecountry followed a synchronized system of investment, R&D,innovation, management and marketing, which drove themtowards development with catching up. R&D expenditure inJapan in 2011 is 3.67 percent of GDP which is 17.38 trillion yen

(Ministry of Internal Affairs and Communication, 2013).Keiretsu, a set of companies withinterlocking business relationships and shareholdings, is one ofthe key factors acted behind the catching up. A concise list offactors that have acted behind the success of these fourcountries is presented in Table 6.


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Table 5: Precise Characteristics of Catching Up Economies in MatrixMalaysia Thailand Singapore Japan BangladeshState Role Incentive to

venture capital,

R&D, export;facilitate industrialinput import; leastforeign exchangecontrol; no foreigninvestorsrestriction, humandevelopment; freezone; patent,trademark,product licensing

& so forth

State Role inthe economy

with incentivein investmentand trade

Incentive toattractive

investment, export;R&D, venture fund,capital;internationaloriented policy;least restriction inentrepreneurialactivity; support toproduct design andtechnologydevelopment, patent

R&D, grants;incentive for

small business;intellectualprotection

Minimum

R&DExpenditure

Moderate Moderate High High ..

Linkage Backward andforward Linkage

Exist Horizontal, forwardand backward

Keiretsu Weak

ForeignFirms

MNCs;norestriction in newinvestment inmanufacturing butspecific for

national industries

Foreign firmswith some keyrestriction

High value addedand R&D intensiveMNC; no restriction

Lower withincountry thanJapaneseoutside thecountry

MNCs withleast restriction

Innovation Prioritized Prioritized Prioritized HighlyInnovative

SubstantiallyLow

FDI Stronger FDIinflow

High FDIinflow

Higher inflow &high bidirectionalflow

FDI outflow isstronger

Recent indownbeatinflow

Technology Transfer

Strongcommitment

High High High Less

ScienceandTechnolog

y Policy

To Achieve Vision2020

For knowledgebasedsustainability

Aggressive Policyfor R&D

Policy to vigourdirect industrialperformance

Lessimplementedpolicy

Others Acquire & AdaptForeignTechnology

Thaksinomics SME priority Wellsynchronization

Lack oforganization


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A review of the experience of the above countriesdemonstrates that Bangladesh needs to grab technology witheffective supports and to initiate innovation process. Directcapital investment, technology import affect the technologicaladvance whereas international linkages like joint venture,

technology outsourcing standardization effect indirectly. Tousher in technological advancement, network developmentamong the stakeholders is important. In this respectgovernment can play direct as well as indirect role with privatesector. There should have to be higher allocation for researchand development. Support should be given in development ofsynchronized channels to seize the international technologicaladvances. FDI investment also plays supportive role ininternational technology grabbing through spillover effect. FDIpolicy, therefore, should emphasize on technological

consideration when dealing with the investors. Knowledgedevelopment and learning intensity are factors of catching upand should be vitalised with enhanced infrastructure, financialand human capital. The Figure 1 illustrates a process oftechnological catching up.

Figure - 1: Process of Technological Catching up


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5. POLICY SUPPORTThe following policy support is needed to strengthen thesituation of the industrial sector:

Concentration on Infrastructure: Concentration should begiven to all the supportive infrastructure of industry i.e.electricity, gas, water, education, health. Using the availablefund, best solutions are required to search for reducing currentand intertemporal cost of infrastructure. The entire physicalinfrastructure including road, rail, and water transport shouldbe focused in terms of quality, quantity and security.

Diversification of Market and Product: Concentration ofBangladesh in nine countries and nine products(aforementioned) is one of the major obstacles in running in

the track en route to achieving sustainable growth of Industry.For attaining sustainable industrial growth, product as well asmarket should be diversified and explored by focusingdomestic capability, and national and international prospectsand risks associated with future markets.

Actions in the RMG sector: Bangladesh should take actionsabout the RMG and other prospective products to gain GSPfacilities from developed countries. The arisen peril of RMGsector regarding workers security, wage and so forth should

be solved convincingly with active involvement of stakeholders.

Technology catching up:The Sixth Five Year Plan has identifiedseveral problems related to technology. The realisation,however, should come with the intention of proper support toR&D. As Bangladesh is a country with low resource base, in thisbackdrop, a complete strategic action plan should be preparedidentifying the sectors and time line to meet up the objectivesin technology. Long run efficient development of humanresources is a prerequisite for industry.

Innovative policy in power sector: Government has highbudgetary allocation in power sector. Although the policieshave solved the power crisis to some extent immediately, theyhave created new problems such as higher electricity prices,budgetary pressure, etc. Interventions have to be selected


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based on prospect and viability of Bangladesh economy andopportunity cost for long term solution of the power crisis.Consider social cost of industry: To satisfy industrialobjectives, time-befitting quick decisions and proper

implementation is important. For instance, the tanneryindustry is in the process to shift, but the shift is sufferingfrom time lag and consequently low investment.

6. CONCLUSIONSThe present study brings to the fore that the industry sector ofBangladesh is maintaining an unsatisfactory rate of growth.Current incongruence in the industrial sector has raised thescope to scrutinise the problems and prospects to facilitate thesynchronisation of understanding and implementation. The

study finds four clusters of weaknesses that resulted insluggishness of the industrial sector of Bangladesh.Concentration should be given to all the supportiveinfrastructure of industry i.e. electricity, gas, water, education,health using the available fund. Export oriented product as wellas market should be diversified and explored. Innovativepolicy, both short and long run, should be taken to overcomethe power crisis. Last but not the least; concentration should begiven to technological catching up to boost the industrialsector. But above all, to maintain successful industrilisation, the

government has to play proactive role in terms of regulation,incentives and entrepreneurial pathways.


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Singapore: Agency for Science, Technology and Research, Singapore. http://www.a-

star.edu.sg/Portals/0/media/RnD_Survey/RnD_2011.pdf (Accessed on 10 October 2013)Bangladesh Bank. 2013,Economic Statistics. Dhaka, Bangladesh: Bangladesh Bank.

http://www.bb.org.bd/econdata/intrate.php (Accessed on 1st October, 2013)Bangladesh Bank. 2013, Major Economic Indicators: Monthly Update. Dhaka, Bangladesh:

Bangladesh Bank. http://www.bb.org.bd/pub/publictn.php# (Accessed on 1stOctober, 2013)Bangladesh Bureau of Statistics (BBS). 2013, Industrial Production Statistics (IPS), Monthly Release.

Dhaka, Bangladesh: Bangladesh Bureau of Statistics (BBS), Statistics Division, Ministry ofPlanning, Government of the Peoples Republic of Bangladesh.

Bangladesh Power Development Board. 2013, Dhaka, Bangladesh: Bangladesh Power DevelopmentBoard, Government of the Peoples Republic of Bangladesh.

http://www.bpdb.gov.bd/bpdb/ (accessed on 1stOctober, 20132)Central Intelligence Agency (CIA). 2012, World Fact Book.

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The Economic Times. 28 February 2013, Finance, Budget 2013: Rs 20,051 crore for science relatedministries. http://economictimes.indiatimes.com/news/economy/finance/budget-2013-rs-20051-crore-for-science-related-ministries/articleshow/18734934.cms

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